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Pensions stability buffer: Reducing the risk of a trapped surplus

Sponsors of defined benefit pension schemes are becoming increasingly concerned about the risk of overfunding with the result that surplus assets become trapped within their scheme. We have worked with Aon Hewitt to develop the Pensions Stability Buffer, which is designed to help reduce this risk. This solution provides security to the pension scheme trustees, and can encourage sponsors to fund their schemes more fully and more quickly, by giving them the reassurance that they can recover excess contributions should a surplus arise in the future.

What is the Pension stability buffer?

The Pension Stability Buffer involves the sponsor paying money into a custody account, outside of the pension scheme. The assets in the account are subject to a charge in favour of the trustees, giving the scheme security over the assets. Payments would be made from of the account to the scheme on the occurrence of certain agreed triggers (such as the scheme becoming underfunded). Similarly, if a surplus arises, the excess assets may be returned to the sponsor. 

Benefits of the pensions stability buffer

For schemes sponsors;

  • reducing the risk of a trapped surplus within your defined benefit scheme.

 For trustees;

  • making it easier for a surplus to be returned to you.
  • encouraging your scheme's sponsor to contribute more by reducing the risk that excess contributions will be trapped within the scheme.
  • having access to a wide range of investment options.
  • Provides a complete service for those wanting to establish an efficient funding vehicle.

Implementing the pensions stability buffer

In order to help schemes implement this solution, Eversheds Sutherland and Aon offer:

  • a free initial meeting to assess whether the Pensions Stability Buffer is appropriate or whether another funding strategy or alternative financing solution may be more suitable.
  • comprehensive advice regarding the appropriate triggers for funds to be released to the scheme or returned to the sponsor.
  • investment advice on how to invest the assets held in the custody account.
  • flexibility to adopt template or bespoke legal documents according to your requirements.
  • flexibility to adopt pre-agreed legal documentation with the custodian, enabling a cost effective, 'fast-track' set up process.

Cost effective solution

Pensions stability buffer provides:

  • a cost effective process, with cost predictability via competitive fixed fees for the key elements.
  • a more efficient and shorter implementation process than is often seen.
  • the ability to invest in a wide range of asset classes.

There is also flexibility for you to choose which elements of the service you need and what support you require to suit your particular requirements.

Pensions stability buffer process

We follow a clearly defined process with the potential barriers considered early to avoid wasting time and money. Optional investigations in Phase 2 depend on the complexity of the triggers being considered.

Phase 1

Phase 2

Phase 3


Optional - Analysis and advice

Negotiation with Trustees/ Sponsor


Eversheds Sutherland – experience, expertise and flexibility

Eversheds Sutherland has the largest team of specialist pension and financial services lawyers in the UK, with in depth knowledge of pensions, investment, banking and tax law. Eversheds regularly advises on a wide range of alternative funding solutions including asset backed contribution structures, escrow accounts and funding trusts, parent company guarantees (UK and international) and charges over assets.

Eversheds Sutherland have the capacity to provide as much support as you require but we will also work flexibly to provide the support that you need.

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